Why AdWords Accounts Succeed and Fail [DATA]

If you’ve ever managed an AdWords account, at some point you’ve sat back, stared at the computer screen and wondered, “Why? Why is this happening?”

Even the most experienced account manager has this sort of moment on a regular basis. AdWords is just plain hard to figure out.

You can follow every best practice and come up short…and then make some minor tweak that produces phenomenal results.

A while back, we realized that a lot of the apparent “randomness” of AdWords management came from the fact that we were relying on personal experience to figure out our best practices. That didn’t work.

After trying to figure out why one person’s “best practices” backfired for someone else, it occurred to me what our problem was—we couldn’t see the forest for the trees.

To solve this problem, we started accumulating data. We collected data on our own accounts. We audited over 2,000 AdWords accounts for potential clients.

However, most plumbing/HVAC companies only track form submissions, which are few and far between—making them a terrible indicator of campaign effectiveness!

Plumbers aren’t the only ones with this problem, either. Many companies with millions of clicks have only a handful of conversions to their name.

Yes, they technically have conversion tracking in place, but it’s not doing them any good.

Conversion Rates

This poor tracking implementation heavily weights conversion rate estimates towards 0%. Even accounts with millions of clicks are not immune to this problem.

For example, take a look at this chart, which compares total clicks per AdWords account to the conversion rate of the account.

Clearly, there’s a reason why a conversion rate of 2-3% is generally considered “typical” for an AdWords account.

Based on our data, the median conversion rate for an AdWords account is 2.18%.

The bottom 27.5% of accounts lie in the 0-1% conversion rate range and the top 25% of accounts have a conversion rate better than 5.34% (note, this correlates well with Larry Kim’s findings over at Wordstream).

What does that mean for you? Well, if more than 5.34% of your clicks are converting, that means your conversion rate is better than 75% of AdWords advertisers.

If your conversion rate is above 11.03%, your account is in the top 10% of all AdWords accounts.

Great news, right?

Well, maybe.

Remember, only half of conversion tracking is actually set up correctly. Here’s how the conversion rate distribution breaks down for the half with good conversion rate tracking in place:

For accounts with good conversion tracking, only 15.2% have a conversion rate of less than 1% (vs 27.5% for accounts with any sort of tracking).

On the other end of the spectrum, the top 10% of accurately tracked AdWords accounts have a conversion rate of at least 20%!

As a result, the median conversion rate for these accounts is 3.16%—or about 50% higher than the average conversion rate for all tracked accounts.

In all seriousness, though, most AdWords accounts are missing at least half of their conversions, which makes it very difficult to do any effective campaign optimization.

Why? Let’s take a closer look at those well-tracked AdWords accounts and see where most ad spend is really going.

Ad Spend Efficiency

Hopefully, it’s clear by now that most AdWords accounts are not tracking their conversions properly. The question is, how does that affect campaign performance?

To get at that data, we need to look at overall budget efficiency.

Pay-per-click advertising is intent-based marketing. In other words, you want your ads to show up for internet searches that indicate a strong purchasing intent—you want to be seen by people who want your product or service.

Fortunately, AdWords provides insight into the search intent of your audience through the Search Terms report.

The Search Term report allows you to see exactly what searches triggered your ad and how many impressions, clicks and conversions each search term produced.

However, if your ads are showing up for the wrong search terms (eg, the search intent is wrong), people might click on your ads, but they certainly won’t convert.

This makes the Search Terms report a key source of insight into the efficiency your ad spend.

The more money waste on search terms that don’t convert, the less effective your ad spend is. Conversely, a well-managed AdWords budget will be primarily spent on search terms that produce conversions.

What You Can Do With This Data

Fortunately, understanding how wasted ad spend affects the performance of your AdWords account gives you a huge leg up on the competition.

First off, implementing and using quality tracking puts you ahead of 71% of the competition.

Second, you can use your conversion tracking data to identify where you are wasting your ad spend. Simply eliminating wasted ad spend will cut your cost-per-conversion and make your campaigns more profitable.

Third, and this is where the real power of your data comes into play, you can redirect that formerly-wasted ad spend towards effective keywords and search terms. Remember, that exponential acquisition cost equation works in reverse, too.

Shifting your budget from budget-sucking terms to profiting-producing keywords will allow you to produce many more leads at a substantially lower price.

In fact, this approach is so effective that it has become a key part of our AdWords strategy at Disruptive. The results have redefined PPC advertising success for our clients.

Aden Andrus

Director of Content Marketing

Over his career, Aden has developed and marketed millions of dollars of successful products. He lays awake at nights figuring out new marketing tactics and is constantly upping Disruptive's internal marketing game. He loves to write, dance and destroy computer monitors in full medieval armor.

5 Comments

What about Assisted Revenue? The company I am currently working for their product is an average of $1500, so people don’t typically purchase on the first click. A lot of the “wasted spend” is what we consider awareness spend to get our name out there in the marketplace.

Although the default attribution model for AdWords is “last click”, AdWords does allow you to see assisted conversions (you can find the column under “Attribution”).

You can’t see assisted conversions on a Search Terms report, but you can add the column to your keywords report. It won’t be quite as granular of data, but it will still give you a good feel for where your money is going.

In our audits, click assisted conversions accounted for about 10-20% of conversions. In terms of wasted ad spend, a mere 0.38% of those assisted conversions come from keywords that didn’t produce any conversions, so for most well-tracked accounts, including assisted revenue doesn’t really improve things much.

Generally speaking, if a keyword assists in producing conversions, it usually produces conversions too. If it doesn’t produce conversions on it’s own, it probably doesn’t assist in producing conversions either…which means money spent on that keyword is wasted.

Great question, Wijnand. Essentially, I’d best describe it as a “nickel and dimed” situation. Many of the search terms in our study matched your description: they only had a few clicks, but each of those clicks cost the advertiser money. As the number of search terms with 5, 50 or 500 clicks grew, the total amount of ad spend that was not producing conversions went up.

Now, as you pointed out, just because a search term didn’t convert any of the 5 clicks it received, that doesn’t necessarily mean it’s a useless search term. After all, if a search term converts one out of every SIX clicks, that’s still a good search term.

But here’s the thing, in our study, we evaluated search term performance over a 6-24 month time frame. If, over the course of 6-24 months, a search term only produces 5 clicks and no conversions, that indicates a targeting problem. Yes, that search term MIGHT produce a conversion on click #6, but you have no way of knowing.

With this in mind, we realized that the only way to determine the cumulative effect of these nickel-and-diming search terms would be to look at how varying levels of wasted ad spend affected the performance of an account. If spending less overall on these nick-and-dime search terms improved the overall cost-per-conversion, than it seemed reasonable to believe that those search terms were having a negative effect on the account. On the other hand, if eliminating wasted ad spend had a negative effect on account performance, than it seemed likely that even clicks without conversions were contributing in some way to the conversion process.

Based on our regression analysis (and experience applying this concept to client accounts), search terms without conversions are a good marker of fundamental targeting issues in your account. Obviously, if a search term gets 5 clicks a year, it’s probably not breaking the bank…but multiply that by a thousand search terms that only get 5 clicks a year that don’t convert and you’ve got a very different story.

So, yes, 60.73% of ad spend is wasted and yes, that includes search terms with a small number of clicks. But, if 61% of your ad spend is going towards search terms that don’t convert, you’ve got a problem—even if those search terms don’t all have enough individual data to be a clear waste of money.